Betting on a property boom? Here's the bank stock you should buy

I'm still bearish on the banks but if I were to buy one, I know which it'd be.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Australia's property market seems to be a sure beat. Investors and homeowners could have potentially set themselves up for life if they bought one or two houses two decades ago. Even still, it now seems we can expect more of the same.

However what many home owners and investors have potentially overlooked during all those renovations, rates payments and other management fees, is that Australian banks – the businesses that have equally benefitted from more property purchases – have also risen in spectacular fashion in the past 20 years.

Australia's big four banks each provide a unique investment strategy. For example, Commonwealth Bank (ASX: CBA) is focused on developing technology and is heavily leveraged in the domestic mortgage market, with 26.8% of all loans under its belt. Westpac (ASX: WBC), which isn't growing loans nearly as fast as the other banks, controls 24.7%.

If you're betting on a property boom, however, you might be interested in knowing which banks are growing their loan portfolios the quickest. Over the past year the banks with the fastest growing loan books (expressed as percentage) were ANZ (ASX: ANZ), which grew its mortgage book by 7.1%, and NAB (ASX: NAB), which pushed out 6.9% more loans.

Obviously it has to be recognised that ANZ and NAB are coming off lower bases than their larger counterparts but, as investors, were interested in growth stories.

NAB is on the road to recovery after years of volatile earnings, largely stemming from its poorly performing UK assets which felt the shockwaves of a slow recovery in Europe after the GFC. Domestically, its business bank derives a substantial part of its earnings and it occupies only 16.3% market share of mortgages – meaning it has got plenty of room for long-term growth.

Unlike NAB, ANZ is going from strength to strength. It's now investing in technology, growing in Asian markets and is swooping in on would-be home owners here in Australia. Its ability to leverage long term success (or failure) in Asia with operations domestically will help it not only stabilize earnings but grow its presence in the entire Asia Pacific region. It has a 14.8% market share of Australian mortgages.

Foolish takeaway

The big four banks are in prime position to take advantage of an ongoing demand for Australian property. However rising average loan-to-valuation ratios are not a healthy sign for long time earnings because they have a higher chance of default when interest's rates inevitably rise — leading to more bad debts.

Bank stocks have performed exceptionally well in the past 18 months as investors have gone in search of yield. They are currently trading on very high earnings multiples with, what seems to be little growth prospects in the short to medium term. However, in my opinion, if I were forced to choose I believe ANZ boasts the best long term strategy – although it's too expensive at current prices to justify an investment.

Therefore unless new investors are buying bank stocks for the long term, I would look to find other alternative stock ideas.

Motley Fool contributor Owen Raszkiewicz does not have a financial interest in any of the mentioned companies.  

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »